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October 15, 2001


The opinion of the court was delivered by: Garaufis, District Judge.


Defendant Jeanne Raynor ("Raynor") moves for summary judgment, pursuant to Fed.R.Civ.P. 56(b), against Plaintiff Diane Kessenich ("Kessenich") on the first claim in the Amended Complaint. For the reasons discussed below, Raynor's motion is denied.


The facts of this case were set out in extensive detail in this court's earlier decision on the motion of defendants Kanas, Blake, Jeanne's Junior Jungle, Inc., and Raynor Country Day School to dismiss. See Kessenich v. Raynor, 120 F. Supp.2d 242 (E.D.N.Y. 2000). Without repeating this factual background in full, following is a summary of those facts pertinent to Raynor's current motion for summary judgment on the first claim, with all ambiguities and inferences resolved in favor of Kessenich, the non-moving party.

On or about September 26, 1994, Kessenich pledged a $50,000 certificate of deposit to European American Bank ("EAB"). The $50,000 was pledged in connection with a line of credit extended to Jeannes' Junior Jungle Inc. ("JJJ") that Raynor guaranteed. (Kessenich Affidavit in Support of Cross-Motion for Summ.J. ("Kessenich Aff.") ¶ 11.) By notice dated November 10, 1994, the Internal Revenue Service issued a levy on JJJ's bank account at EAB, and Raynor asked Kessenich to furnish collateral to EAB "in an amount sufficient for Raynor to obtain a loan from EAB to discharge the levy." (Am. Verified Compl. ("Am.Compl.") ¶¶ 16-17.) On or about December 5, 1994, Kessenich temporarily pledged a $25,000 EAB certificate of deposit, creating a $24,976.79 line of credit (the "EAB Credit Line"), and the levy was discharged with funds loaned to Raynor pursuant to that credit line. (Id. ¶¶ 18-19.) In late August 1995, Kessenich substituted a zero coupon municipal bond (the "Bond Collateral") as collateral in place of the two certificates of deposit for the $50,000 and the $24,976.79 lines of credit. (Pl. Statement Pursuant to Rule 56.1(b) in Opposition to Def.'s Motion for Summ.J. ("56.1(b) statement") ¶ 1(E).)

In February 1997, subsequent to the above transactions, Raynor and JJJ obtained an increase to $90,000 on the EAB Credit Line (the "Increased EAB Credit Line") by representing to EAB that Kessenich had approved the application of the Bond Collateral to the Increased EAB Credit Line, despite the fact that Kessenich had not approved such an application. Raynor and JJJ later defaulted on the original EAB Credit Line and the Increased EAB Credit Line. In December 1998 and January 1999, Raynor and JJJ falsely represented to EAB that Kessenich had approved the liquidation of the Bond Collateral to satisfy Raynor's balance on the Increased EAB Credit Line. In January 1999, EAB liquidated the Bond Collateral, which resulted in proceeds of $137,042.10. Of that amount, $66,649.10 was paid in satisfaction of Raynor's obligation to EAB and $70,393.00 was returned to Kessenich. (Am.Compl. ¶¶ 5055.) These facts provide the basis for the first claim of the Amended Complaint, which alleges that "Raynor owes Kessenich $66,649.10 for money lent pursuant to the EAB Credit Line and/or the Increased EAB Credit Line plus interest." (Amend.Compl. ¶ 55.)


Prior to the instant motion, defendants moved to dismiss the Amended Complaint and Kessenich cross moved for partial summary judgment on several claims. This court granted in part and denied in part the motion to dismiss. Kessenich's cross-motion was granted in part, but denied as to the first claim. The underlying theory of the first claim, as argued in Kessenich's cross-motion, was based on a principal-surety relationship between Kessenich and Raynor. (Pl.'s Mem. of Law in Support of Cross-Motion for Summ.J. on First, Third through Seventh, Eighth and Ninth Claims of Am.Compl. ("Pl.'s Cross-Motion") at 14-15.) Kessenich alleged that because she "furnished collateral in an amount sufficient for Raynor to obtain two loans from European Amercian Bank (`EAB') in September and December 1994," Kessenich was a surety and Raynor the principal obligor for the money that EAB lent to Raynor and JJJ. As such, Kessenich argued that she was entitled to indemnity for the principal obligor's default. (Id.)

Kessenich offered little more than the foregoing conclusory statements to support her claim of surety status. On review of those assertions, this court found that while there existed no dispute as to the material facts relating to Raynor's default and the liquidation of Kessenich's Bond Collateral, Kessenich had failed to show that she was entitled to judgment as a matter of law. 120 F. Supp.2d at 249. Raynor now moves for summary judgment, arguing that on the same set of facts this court should find as a matter of law that no suretyship relationship existed.


Summary Judgment Standard

Summary judgment must be entered when "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c). "The burden of showing that no genuine factual dispute exists rests on the party seeking summary judgment, and . . . the court is required to resolve all ambiguities and draw all factual inferences in favor of the party against whom summary judgment is sought." Nationwide Life Ins. Co. v. Bankers Leasing Ass'n, Inc., 182 F.3d 157, 160 (2d Cir. 1999) (quoting Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 202 (2d Cir. 1995)). Only after the moving party has carried this initial burden, does the burden shift to the nonmovant to "come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting FED.R.CIV.P. 56(e)). See also Kessenich, 120 F. Supp.2d at 247-248 (discussing standard for summary judgment and denying Kessenich's earlier cross-motion for summary judgment on this same claim).

Creation of Suretyship Status

Raynor's motion for summary judgment argues that Kessenich cannot demonstrate suretyship status as a matter of law.*fn1 In so doing, Raynor primarily relies on the New York Statute of Frauds, N.Y.GEN.OBLIG.LAW § 5-701, arguing that it constitutes as a complete bar to Kessenich's claim. Raynor's sole argument is that "[a]ny suretyship must be in writing to be enforceable." (Def.Mem. of Law at 2.) While the New York Statute of Frauds does require "a special promise to answer for the debt, default or miscarriage of another" to be in writing, see N.Y.GEN. OBLIG.LAW § 5-701(a)(2) (McKinney's 2001), this does not require, as Raynor assumes, that the status of suretyship itself must be established in writing. Raynor's argument fails to distinguish surety by express contract, which falls within the Statute of Frauds, from suretyship by operation of law, which does not. See 63 N.Y.JUR.2D GUARANTY AND SURETYSHIP § 24 (1987) (noting that New York follows general rule that "a contract of suretyship must be in writing, unless arising by operation of law") (emphasis added). Thus, suretyship can arise by operation of law, despite the absence ...

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